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This map shows why Tesla will not make its 5,000 unit target in China anytime soon.

Published on May 20, 2014 by Bertel Schmitt

In what we thought as a mostly adulatory article, Tycho wrote last week that boundless demand for Tesla’s Model S fuels the grey marketing activities of Tianjin car dealers. I followed it up with the fawning prediction that, based on the high demand and on what Chinese customers are ready to pay more ($13,000 above list) just to get their Model S now, I see no reason why Tesla can’t make its target of selling 5,000 of their electric cars this year in China. In the no good deed going unpunished dept., Tesla’s new China spokesperson Peggy Yang (she was just hired away from Volkswagen) took issue with the story.

“Tesla has only one official dealer in China, in Beijing,” who would not make serious deliveries before June, wrote Tycho. “Bu hao,” says Peggy: “They are our stores, not our dealers.” And furthermore: “Tesla has already begun deliveries and not until June.” And then she said something that made me revise my 5,000 unit prediction.

Well, dui bu qi. Dealer/store semantics aside, it is true that a few Model S were delivered during the Beijing Auto Show, mostly for the consumption of the media, leaving a long list of unfilled orders, so long that incensed customers threatened to take (or possibly even took) legal action against Tesla. How many customers received or did not receive a car, Peggy won’t say, citing Tesla’s somewhat unorthodox policy when it comes to sales numbers: “ We do not normally disclose delivery numbers in any individual market and we announce deliveries in our quarterly financial report.”

What is completely clear is that all those buyers of grey market Teslas are SOL, should something happen to their brand new car. Tesla’s own blog unmistakably drives home the fact – in Chinese and English – that there is no warranty protection whatsoever for those rogue cars, that expensive parts may have to be shipped-in from America, and to make matters worse, “time and travel expenses for specialized technicians” could be charged. “This policy remains unchanged,” says Peggy.

What made me rethink my 5,000 unit prediction was Peggy’s next sentence: “Tesla continues to deliver to customers when their home charging validation is completed (ie, after charging stations are installed at their permanent parking space at home or wherever they choose to, e.g. their office building) and when Tesla service centers are opened in their city.”

This is where the 5,000 unit assessment crumbles.

As Tesla’s own map shows, there currently are all but two official Tesla service centers in Mainland China, one in Beijing, and one in Shanghai. (The one in Hong Kong does not count. Chinese need a visa to get there.) If you live anywhere else in the big country, no luck. More service centers may be planned, but on the map, the “coming soon” category is empty as far as China is concerned.

Also as the map shows, Europe is literally covered with Tesla service centers, both of the current and coming soon variety. Soon, Norway’s Tromsö, a city of 71,000 people north of the Polar Circle, will sport a Tesla Service center. China’s Chongqing, a city that is home to six times the population of all of Norway, has none. This is just scratching the surface of the 1.3 billion country, and it is a major drawback of Tesla’s direct sales model, which will hold back China’s penetration for many years. If you must run all your dealers stores yourself, getting them up and running is more time and money consuming than handing out a franchise manual and collecting a franchise fee from an eager dealer. Even Europe’s situation is far from ideal. Europe’s map may look like it is covered with service centers, but counting them shows barely 20. As a comparison, Peggy’s former employer and my former client Volkswagen has some 10,000 service partners in Europe, 2,800 in Germany alone. Back of the envelope, I figure Tesla needs some 80 to 120 service points in China to bring it to a service level comparable to Tesla’s current suboptimal situation in Europe. At the cost of between one and two million dollars per center (again my estimate, based on experience,) this will require a sizable investment into China.

With only one service center in Beijing and one in Shanghai, both cities each with roughly the population of Australia, and with nothing elsewhere, Tesla’s chances of flooding the market with significant numbers will remain low to nil as long as the presence of a Tesla service center in the customer’s city is a prerequisite for delivery.

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4 comments

Seriously, for a car-oriented web site covering Tesla’s move into China, you really will have to do more research.

To say something like “Dealer/store semantics aside” when commenting on Tesla shows you have completely missed one the bigger legal battles between corrupt dealer protection legislation in US, which is being used to freeze Tesla out of state and prevent it from selling its cars, as it does NOT have any dealers.

Tesla sells online only, and has showroonms where people can see the product and choose what they want, ask for advice, then place their orders with the factory – but NOT with a dealer.

The existing dealers don’t want Tesla on their territory. They make their money from repeat servicing etc – and there’s practically no service or similar with Tesla’s cars.

The key point for the future of Tesla in China is not on the service points that will grow in accordance to the numbers of cars in the market, but by the policy that the local government will take for the commercialization of foreign made EV.
If also in Beijing ( as well in the other cities where the plate number is subject to restriction) will be implemented the policy now working in Shanghai, then i think that Tesla will be able to sell a relevant number of cars in China even in this first year of commercialization.
I remember that at the moment only in Shanghai is possible to buy a Tesla or any other foreign made EV ( up to the number of 3000 for each brand) without partecipate to the lottery . Many affluent people in this country just does not want to wait for lottery when they are ready to buy a luxury car. Many possible costumers of well established luxury brands could just turn their attention to Tesla, because it could be the only luxury car immediately available within plate restriction.
Finally i still would like to urge the Chinese government and local policy makers, to create a national wide standard for the EV both domestically or foreign made.